Best practices for Contract Lifecycle Management

It has been quiet a long time that I and my team have been working on a Contract Lifecycle Management application support for one of our elite client. To start with I would like to give a brief introduction on what is a contract as per law definition.

“A contract (or informally known as an agreement in some jurisdictions) is an agreement having a lawful object entered into voluntarily by two or more parties, each of whom intends to create one or more legal obligations between them.” as defined by law.

In a day - to - day business scenario contracts have been signed for various professional requirements such as IT, Administration, Security, Hardware, Transport, etc. This also requires a well-aligned structure to maintain the contract related data for future utilization. This can be defined with the help of Contract Management.

“Contract management is the process of managing contract creation, execution and analysis to maximize operational and financial performance at an organization, all while reducing financial risk. Organizations encounter an ever-increasing amount of pressure to reduce costs and improve company performance.” as defined by Wikipedia.

Gone are the days when contracts were manually maintained and managed by organizations. As the industry has evolved, so is the process of Contract Lifecycle Management. More refined processes and applications are streaming the market with automation that leads to significant improvements in cost savings and efficiency. 

“Contract Lifecycle Management (CLM) is defined as a proactive methodical management of a contract from initiation through award, compliance and renewal.” as defined by Wikipedia. 

This blog will help an organization place few players that are considered as best practices for Contract LifeCycle Management. Below diagram states few best practices that have been analyzed for CLM

1. Central Repository:
Data is the most valuable asset of an organization. It helps in drawing a future picture for upcoming generations and also speaks about the history. It is always advisable to maintain a centralized repository as a best practice for contract management. Well amongst the few logical reasons are to establish complete set of contracts for easy tracking, managing and security considering how often one needs to refer available data. It helps you in locating the required detail without much hassle at a single location compared to the ancient method of file cupboards. Top most advantages also include the aligned structure for storage and reporting ease. We use the search option to filter and search for the expected results.

2. Automated Alerts:

Timely reminders is a crucial need for Contract Management. It allows the users to meet the deadlines and acts as a cost savings opportunity. Automated alerts is a better version of Tracking crucial contracts milestones over manual tracking that is more prone to human errors. It also, has an additional benefit of being directly linked to your contract and hence reduces the supervisory task of setting manual reminders/notes using outlook. Any change in the contract will be considered for system generated alerts. Alerts are suggestively configured for reminders on contract expiration dates.

3. User Level Security:

One-Stop solution for a complete business process with user accessibility security boundaries is a wise decision. Data visibility to the authorized individual is the most crucial task. This is quiet complex for manual data allocation, but feasible in a contract management application. Enhanced security measures is a mandatory aspect considering the volumes of data involved and the probability of sensitive data being open to many unauthorized users. Group level user access is provided to users in the Contract Lifecycle management application that currently we are working on. 

4. Audit Trail: 

Maintaining an audit trail of the changes performed. Crucial input for audit and ensure compliance. It is a crucial task to compile the necessary records for an audit in a decentralized system. A CLM system should offer tools such as language and template libraries, tracked edits, and user permissions that make compliance even easier to achieve. A next generation CLM system also support automated workflows that helps in inculcating the culture of performing required checks and following the required procedure for completing a Contract lifecycle. This ensures an organized, timely and error less contracts trails. As data is centrally available with required time stamps and versioning and also user identifications for the required tasks. 

5. Process Automation:

Adding to the benefits specified in the above point for automated approval process, it also helps in eliminating bottlenecks and improve the productivity of your staff. In a manual process contract approval process is time consuming considering the authorizers availability, data completeness and verification. Automated email alerts on contract submission, template repository, e-signatures, etc. are also part of this batch of future features resulting in a great way to stay on top of deadlines without missing a beat. A new feature addition e-signatures has helped in reducing the wait time due to manual tasks of mailing, scanning, or faxing a hard copy agreement for user convenience in case of unavailability due to travel or work from home.

6. System Integration:

Seamless communication between systems is one of the key requirements of a smart application. As part of an organizational IT structure we are aware that even though we believe in a single platform structure, many organization still use multiple systems. To manage a complete process and keep the data real time many internal and external Integration links are required. Hence it is very essential that your CLM system is flexible enough to support the various types of integration needs and match the format diversity of other system designs. 

7. Maintain Template module:

For a Global Company it is a boon to create a reusable template library with the company’s standard language, terms, and clauses. As part of standardization, every contract consists of standard language, terms, and clauses. This makes it effective for reference in a scenario such as staff members are unsure of proper language when drafting an agreement, when major errors can be made. One can even have user level security for the templates shared in the common library for compliance purpose. A common template library helps in reducing miscommunication for company standards, improves productive time and provides a central repository for access.

8. Reporting:

The most tedious task of the year is collating of data and presenting it in the desired format. This is time consuming and manual execution may lead to errors. A CLM application should provide a tool that is capable of establishing a series of custom reports in a very effective way. Reports are a need of the niche team members to have the overview of status, geographic breakdown, or value of certain contracts. These reports will also help the organization for future plan and milestone analysis like on the average contract lifecycle or how many contracts were processed in a given time frame. Reports allow you to measure success and track productivity for more informed business decisions over time.

Conclusion: 

So here we go with a collated list of pointers that can be considered as best practices for CLM. Centralizing contracts, automating alerts, automating approval process, template module, integration and reporting are the keys to an effective contract management process. Well managed contracts lead effectively to productivity, minimized risks and maximized profitability.

About Author:
Mrudula Palyekar is a consultant in Systems Plus Pvt. Ltd. Within Systems Plus, she actively contributes to the areas of Technology and Information Security. She can be contacted at: mrudula.palyekar@spluspl.com